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ARTICLE D

Principles Regarding Program Revenue

Section D-1.     The Program Revenue Concept

     The Medical Care Program is conducted by Health Plan, Hospitals and Medical Group.  Although these organizations are legally separate, the Medical Care Program in its operations is an economic and service unit.

     Consequently, virtually all revenue derived through the Medical Care Program and through related activities of Health Plan, Hospitals and Medical Group is regarded as Program Revenue, and as Program Revenue it is applied to support the overall Medical Care Program.

     As the same time, revenue from sources other than Dues and Supplemental Charges is regarded as revenue of the party to which, as a legal matter, it belongs in the first instance.  Thus, revenue attributable to Nonmember and Workers' Compensation Services is revenue of Medical Group or Hospitals, but is classified and taken into account as Program Revenue for purposes of determining the revenues that must be derived from other sources, principally Dues, to support the total Medical Care Program.  

Section D-2.     Principles of Payment Under Membership Contracts

     Dues constitute the basic method of payment for benefits  under all Membership Contracts.  Paying for Medical and Hospital Services though prepaid dues is in keeping with the Medical Care Program's fundamental principle that budgeting the costs of health care is beneficial to Members, to Hospitals and Medical Group as providers of services, and to the community as a whole.

     Health Plan offers various types of Membership contracts in order to provide for the varying circumstances of, and meet the needs of, different categories of Members.  The various types of Membership contracts differ in the extent to which the Medical Services and Hospital Services arranged by Health Plan are paid for through Dues and through Supplemental Charges; however, in all Membership Contracts, Dues constitute the major portion of the payment.  The concept underlying all Membership Contracts is that, on a group basis, similar total charges are made for similar categories of benefits, but that such charges may be divided in different ways between prepaid Dues and Supplemental Charges (which consist of various charge in lieu of comprehensive prepayment).  Although Supplemental Charges in lieu of prepayment are made as an incident to and in connection with the receipt by members of various Medical Services and Hospital Services, such Services are rendered pursuant to the requirements of this Agreement and of the Hospital Service Agreement, and not in consideration of Supplemental Charges.  Accordingly, Supplemental Charges do not constitute fees for services, but rather are charges in lieu of prepayment in accord with the basic principles of the Medical Care Program.

     To facilitate applying these underlying principles, it is desirable that all Dues and Supplemental Charges be collected by or for the account of Health Plan, and that compensation for Medical Services be on the same basis for all types of Membership Contracts without being affected by the varying relationships between Dues and Supplemental Charges.

Section D-3     Accounting Principles to be Observed

     In the administration of this Agreement generally accepted accounting principles, consistently applied, will be followed, and, insofar as consistent therewith, the past accounting practices of Health Plan will, except to the extent otherwise agreed, be followed.

Section D-4.     Collection of Program Revenue